The money market is placed on high expectation to remain elevated in the double-digit region this week following expected debits by the Central Bank of Nigeria (CBN) from Banks.
The debits represents cash reserves ratio (CRR) which was peg at 27.5 per cent at the last Monetary Policy Committee (MPC) of the CBN at its last meeting.
CRR is the share of a bank’s total deposit that is mandated by the CBN to be maintained with the apex bank as reserves in the form of liquid cash.
The debit is expected to tighten liquidity in the market and offset expected inflows from FAAC disbursements, OMO maturities of N33 billion and FGN bond coupon payments estimated at N17.87 billion this week.
Last week, the overnight (OVN) rate expanded by 475 basis points (bps) week on week to 20 per cent, in light of the funding pressures for the November bond auction settlement of N225.25 billion, CBN’s weekly OMO of N25 billion and FX auctions that offset the sole inflow from OMO maturities of N70.50 billion.
Treasury bills
Last week, bullish trading sentiments persisted in the Treasury bills secondary market still on the back of declining primary market offer rates in the NTB segment and as foreign investors increased their OMO portfolio.
Accordingly, the average yield across all instruments contracted by 11bps to 5.3 per cent. Across the market segments, the average yield declined by 14bps and 8bps to 5.5 per cent and 5.1 per cent at the OMO and NTB segments, respectively.
In the coming week, market experts expect the outcome of the NTB auction to shape the direction of yields in the T-bills market. At the auction, the CBN is set to roll overN118.73 billion worth of maturities to market participants.
Bonds
The Treasury bonds secondary market snapped the mixed trading sentiments recorded in the last two weeks and traded with bearish sentiments as investors took profits on their bond auction winnings and reacted to the increased stop rate of the longer dated instrument on offer. Accordingly, the average yield expanded by 7bps to 11.1 per cent.
Across the benchmark curve, the average yield declined at the short (-3bps) end following sustained demand for the JAN-2026 (-15bps) but expanded at the mid (+13bps) and long (+5bps) segments as investors upwardly repriced the JUL-2030 (+24bps) and JUL-2034 (+10bps) bonds, respectively.
At the bond auction, the DMO offered instruments worth N150.00 billion to investors through re-openings of the 12.5000 per cent FGN JAN 2026 (Bid-to-offer: 1.0x; Stop rate: unchanged at 11.65 per cent), 16.2499 per cent FGN APR 2037 (Bid-to-offer: 0.9x; Stop rate: unchanged at 12.95 per cent) and 12.9800 per cent FGN MAR 2050 (Bid-to-offer: 3.4x; Stop rate: 13.30 per cent, previously: 13.20 per cent) bonds.
Following the significant level of demand (subscription: N267.15 billion; bid-to-offer: 1.8x), the DMO eventually over-allotted instruments worth N225.25 billion, resulting in a bid-to-cover ratio of 1.2x.
“Next week, we maintain our view of lower yields given our expectations of limited supply of debt instruments and deliberate efforts by the DMO to reduce domestic borrowing costs for the government,” say analysts.
